Catastral values and tax
It used to be standard practice when buying and selling property in Spain to under-declare the value in the escritura, or deed, in order to avoid tax. Everybody was complicit, vendor and purchaser obviously, but also estate agents, lawyers and even notaries turned a blind eye. In recent years the authorities have tried to tighten up, however. Paul Whitelock, who has transacted a few houses in Spain in his time, has had a look at the current situation.
The practice of under-declaring a property’s value to avoid taxes has to some extent disappeared in Spain. Once upon a time everybody was at it and it seemed to be condoned. All part of the long-accepted tradition of low-level corruption here.
In the last few years things have tightened up. Most estate agents and lawyers are no longer prepared to get involved, as fines can be heavy.
Every property has a valor catastral, a value for tax purposes. This may have nothing whatsoever to do with the real value, as valuations in many areas are well out of date, and certainly this value does not relate to market value.
To counteract the fact that valuations are out of date each town and village has a coefficient by which the valor catastral is multiplied, in order to arrive at a more accurate valuation for tax purposes. Hacienda use this to try and prevent loss of revenue through under-declaring the price when properties change hands.
So, for example, we have an apartment in Ronda (Málaga) with a valor catastral of just over 17,300€. The coefficient for Ronda is a massive 4.2 because property values have not been re-assessed since 1998. That makes the valuation of my apartment for tax purposes 72,660€. The market value is, however, much higher, at around double that figure. So the system is by no means perfect, because if we were to sell we could under-declare massively and presumably get away with it! Not that we would, of course! … Anyway, we’re not selling.
In nearby Montejaque the situation is very different. Here the coefficient is just 1.8 because properties were re-valued as recently as 2007. A friend of ours owns a house there with a valor catastral of nearly 92,800€ which makes its value for tax purposes 167,040€. It’s market value is around 180,000€, so that’s a little more accurate than the Ronda example.
So, be warned. If the authorities think you’ve under-declared to avoid paying tax, you could be in for a shock. You could be hit by a big tax bill for the shortfall and a fine to boot.